Karnataka Planters' Association

Large crop tour downplays Brazilian coffee production prospects 9th Mar 2016

Large crop tour downplays Brazilian coffee production prospects  9th Mar 2016

Rabobank has issued a modest forecast for Brazilian coffee production after a major crop survey, which could lead to an upward revision to price prospects.
The bank visited the main coffee growing regions of Brazil, which is by far the world’s top exporter.
“As far as we know, this is the largest coffee crop survey ever conducted by a financial institution,” Rabobank said.

Lower crop
Rabobank forecast the Brazilian 2016-17 coffee crop at 51.8m 60 kilogramme bags, below current market expectation.
Among 6 industry estimates since the start of the year, the forecast for Brazilian 2016-17 coffee has averaged 53m tonnes, with estimates ranging from 49.1 to 55.5m bags.
Rabobank’s number even came in below the top end of the range forecast by Brazilian crop supply agency Conab, which has a reputation for underestimating production.
“This is quite likely going to result in an increase in our price forecast […] barring any further depreciation of the Brazilian real,” Rabobank said.
Large beans increasingly available
Arabica production was seen at 39.2m bag, up 6.5m bags year on year.
Ideas for the arabica crop from other forecasts this year have ranged from 37.7m to 42.5m bags,
Still, higher grade beans may be more available.
“We expect large beans of arabicas in the next season, which will compensate the current scarcity of large beans evidenced in the current season,” Rabobank said.
Mealybug outbreak
Robusta production was seen at 12.6m bags, where analyst’s forecasts have ranged from 11.3m bags to 18.1m bags.
This would be a fall of 3.9m bags year on year, and represents a sharp cut from Raboabanks early forecast of a 16m bag crop.
“The low robusta estimate is due to a very severe drought in Espírito Santo and irrigation restrictions,” Rabobank said, also citing a “severe” mealybug infestation.
Buyers will need to look to Vietnam for their robusta supplies, Rabobank said.
Farmer behaviour
Brazil’s coffee output is highly variable, Rabobank said.
“The full-sun, high-input/high-output production system means that production doesn’t only vary because of the weather, but also as a result of farmer behaviour.
Farmers can stop applying inputs, if prices fall too low, while trees that receive insufficient moisture during their flowering period may be pruned, producing no crop the following year.
“It is therefore not surprising that the swings in the Brazilian crop dominate the overall supply-and-demand balance of coffee in the world,” Rabobank said.
Hoarding potential
And any price decline in coffee futures markets could trigger farmer hoarding, Rabobank said.
The best production was seen in areas with large farms, which tend to have capacity to store a greater proportion of their crop.
Rabobank noted that for this reason, coffee stocks could increase as farmers hold back beans, both in anticipation of higher prices, and as a way of hedging against the falling domestic currency.
“We should therefore expect some increase in internal stocks in the 2016-17 season, starting in July 2016.”